EUR USD (1.3195) Bundesbank head Jens Weidmann’s letter to the ECB voicing his concerns about the latest loosening of collateral requirements for the LTRO2 has unleashed a debate that can hardly be confidence-inducing for the euro investors. Reports in German media state that the Bundesbank has already built up a claim of now more than €500 billion against the eurosystem. The Bundesbank is nervous about the counterparty risk posed in the worst-case scenario of a euro collapse. Weidmann’s concerns are in contrast to German chancellor Merkel’s relative composure in face of LTRO2 which she has described as an important step for the banks to get time to reform. Weidmann’s solution to the problem, namely, the securitisation of the claims, has raised many eyebrows among central bank watchers. Given that the eurozone banks have yet to make use of all the funds borrowed under the LTRO2 – a large amount (€776 billion) is still parked at the ECB deposit facility – and that eurosystem imbalances were always theoretically possible, the stance ought not to upset observers as much as it apparently does. The euro slid under the 1.3285 mark on Friday and is now near the lower threshold (1.3185) of the consolidation zone set last week. A false break to the downside is possible, but even a temporary exit could stretch down to as low as 1.3070. To the upside, a new supply point is now at 1.3310.
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Deutsche Bank